Argentina Monetary Policy November 2016

Argentina: Central Bank resumes tightening cycle in November

November 29, 2016

The Central Bank of the Argentine Republic (BCRA) decided to cut the 35-day Lebac interest rate for the fourth consecutive week on 29 November. The Bank cut the main rate by 50 basis points to 24.75%, bringing the accumulated reduction in the Bank’s 35-day Lebac rate in November to 200 basis points. The removal of capital controls and the end of some subsidies exerted massive upward pressure on prices and the Central Bank had to intervene in order to rein in inflationary pressures.

In its November press releases, the BCRA stated that inflationary pressures had been on the rise in October due to the government’s decision to partially scrap a gas subsidy that month. Higher wages in the construction sector also played a role in the spike in inflation in October. Nevertheless, the BCRA stated that recent estimates from government and private sources suggest that the monthly increment in consumer prices is in line with the 1.50% target for the last quarter of the year (equivalent to an inflation target of 19.6% or less).

Finally, the Bank affirmed that it will continue with its anti-inflationary policy stance in an attempt to bring inflation down to the aforementioned target for the end of this year and to further lower inflation to between 12% and 17% next year. The next monetary policy meeting is scheduled for 6 December.

Participants in the LatinFocus Consensus Forecast see the 35-day Lebac rate ending 2016 at 25.0%. Panelists see the 35-day Lebac rate ending 2017 at 19.6%.

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Argentina Economic News

According to the National Statistics Institute (INDEC), consumer prices in the Greater Buenos Aires capital area rose 1.5% in August from the previous month, down slightly from July’s 1.7% increase and undershooting market expectations of a stronger 1.9% increase.